In a recent DWF Insight we discussed the decision in Willmott Dixon Construction Ltd v Prater and others [2024] and the guidance given by Jefford J. in her judgment around the procedure to be followed when seeking a Building Liability Order ("BLO"). In December 2024 Jefford J. handed down a further judgment considering this rapidly evolving area of Construction Law in the case of 381 Southwark Park Road RTM Company Limited & Others v Click St Andrews Limited (in Liquidation) & Another [2024] EWHC 3179 (TCC (‘Southwark Park Road’). We understand that in a subsequent ex tempore judgment, handed down following a further hearing in the same matter, the High Court has indeed now made the first BLO.
Section 130 Building Safety Act 2022, BLO’s and ‘piercing the corporate veil’
Readers will recall section 130 of The Building Safety Act 2022 ("BSA"), which is a novel provision that gives the High Court the power to make a BLO if the Court considers it just and equitable to do so. Under a BLO the specific liabilities of one company can be extended to any other associated companies, and those associated companies can be made liable with the original company on a joint and several basis.
A BLO will have the effect of making one legal entity jointly and severally liable with another entity purely as a result of them being associated through some form of common control. In making a BLO the Court must ignore issues such as privity of contract, and simply "pierce the corporate veil".
For a party to make an application for a BLO, the liability which it wishes to extend must be, to quote section 130 of the BSA, a "relevant liability". That is to say, it must be a liability which arises under:
- the Defective Premises Act 1972 ("DPA"), section 38 of the Building Act 1984 (which has yet to be brought into force); or
- as a result of a building safety risk.
Background
In Southwark Park Road the Claimants sought rulings as to the liability of the former owner of an apartment building arising from defective work which had been carried out to the building, and further a ruling that such liability was a "relevant liability" in order to seek a BLO against companies that were associated with the former owner.
The claim relates to defects in and damage to a block of flats known as St Andrews House, 381 Southwark Park Road, London SE16. The Claimants were the residents' right to manage ("RTM") company and various of the residential leasehold owners of flats in the building (and participating leaseholders in the RTM).
The First Defendant ("Click St Andrews") was a Special Purpose Vehicle which, at the relevant time, owned the freehold and headlease of the building. Click St Andrews is a wholly owned subsidiary of the Second Defendant ("Click Group Holdings").
The RTM entered into a Freehold Purchase Agreement (“the FPA”) with the defendants on 26 February 2020. Under the FPA it was agreed that Click St Andrews would, within a period of not more than 2 years, develop the building by removing the existing pitched roof on top of the building and erecting an additional storey of three prefabricated modular units which would be lifted into place. The intention was that RTM would then purchase the freehold, in its capacity as nominee for the participating leaseholders, and at the same time would grant leases to Click St Andrews for the three new flats which would then be sold. Click Group Holdings guaranteed the performance of Click St Andrews's obligations under the FPA.
The Works
The relevant construction work took place in July 2021. Following removal of the pitched roof there was repeated heavy rainfall and thunderstorms across London and the South East of England, and significant water ingress occurred throughout the building causing damage of varying severity in the flats. The Claimants alleged that the roof structure had not been kept watertight once the pitched roof had been removed, which had allowed the water ingress to take place. Although the defendants had subsequently made some efforts to remedy the damage, the Claimants’ case was that those efforts were inadequate, poorly managed and ultimately incomplete.
Installation of the modular units on top of the building was completed. However, subsequent investigations into the work led to the identification of other alleged defects in workmanship in the modular units, including structural and fire safety issues.
The Claims
Following the commencement of proceedings, Click St Andrews went into liquidation, and played no part in the trial. Click Group Holdings participated in the trial, represented by one of its former directors (albeit it had legal representation for earlier stages of the proceedings).
In addition to claims advanced under the FPA (which are outside the scope of this article), the leaseholders claimed damages for breach of the covenant of quiet enjoyment in their respective leases, claims were also advanced on the basis of negligence, among others.
The Court found that Click St Andrews had breached the covenant of quiet enjoyment contained in the lease of each of the leaseholders as the flats were subject to water ingress and damage, as well as there being fire safety defects or structural defects.
In undertaking the works inadequately, Click St Andrews was also found to have breached the duty of care which it owed to the leaseholders to take care to avoid causing physical damage to the building.
Claim under the DPA
The Claimants also sought to argue that the works to the roof, and the subsequent attempts by the defendants to remedy the defective works and/or dry out the Property were in breach of section 2A of the DPA, on the basis those works were not undertaken in a workmanlike or professional manner with proper materials. In accordance with Section 130 of the BSA, a liability under the DPA could be a "relevant liability" and so form the basis of a BLO.
Decision
The Court noted that the BSA inserted section 2A into the DPA in order to provide for duties to be owed to the individual owners of flats, who did not otherwise fall within the definition of persons to whom a duty was owed under section 1 of the DPA, in respect of work taken on for, or in connection with the provision of a dwelling.
However section 2A of the DPA only applies to work that was undertaken on or after 28 June 2022 (the date when the BSA itself came into effect). Given the chronology of events, section 2A therefore could only apply to some of the remedial works which the defendants undertook following the ingress of water, and not to the original work itself. The Court found that the Claimant's case on breach of the DPA was not sufficiently particularised to allow it to find that there had been any specific breaches of the duty owed under section 2A of the DPA.
That was not the end of the Claimants' case to find a "relevant liability", though. In addition to a liability under the DPA, section 130 of the BSA allows a "relevant liability" to be found if there is a liability as a result of a building safety risk. Section 130(6) of the BSA defines a "building safety risk" as "a risk to the safety of people in or about the building arising from the spread of fire or structural failure". The Claimants sought and were allowed to amend their case at trial to assert that the various alleged breaches relating to structure and fire risk themselves gave rise to a building safety risk.
The Court ultimately found in favour of the Claimants, with damages awarded in relation to rainwater ingress, structural defects and fire safety issues. The Court also held that Click St Andrew's breaches were a “relevant liability” under section 130 of the BSA. This is understood to be the first ever High Court finding of a “relevant liability” under section 130 of the BSA.
Comment
This decision confirms very clearly that findings of liability for building safety can potentially extend beyond the original developer to include associated companies. In short, if a developer uses a subsidiary or special purpose vehicle for a project, liability for any defects may still be transferred to other companies within the same corporate group.
Although no BLO was ordered on this occasion, we understand that at a consequential hearing on 19 December 2024, Jefford J. handed down an ex tempore judgment ordering that a BLO be made against Click Group Holdings, the ultimate parent company of Click St Andrews. We await sight of this further judgment, which is understood to be the first BLO, with interest and will write further with our thoughts on this development.
In the earlier article we discussed why the making of BLOs and Information Orders under the BSA was likely to be a rapidly developing area of the law which will have a tangible impact on the industry and that we may even see a reduction in the use of special purpose vehicles for developments if the use of such vehicles no longer provides the same shield from liability which they did previously. The decisions in Southwark Park Road and Willmott Dixon Construction Ltd v Prater and others may be just the beginning.
For further reading see our recent update: The Building Safety Act 2022 and Building Liability Orders | DWF Group
